Ofcom orders BT to formally separate from Openreach

Ofcom said it now preparing to notify the European Commission of its intention to implement separation plans which it says will make Openreach more independent after BT failed to address competition concerns

Communications watchdog Ofcom has ordered BT to formally separate from its Openreach network after BT failed to address competition concerns.

Openreach develops and maintains the UK’s main telecoms network used by providers such as Sky, TalkTalk, Vodafone and BT’s retail business.

Ofcom said it now preparing to notify the European Commission of its intention to implement separation plans which it says will make Openreach more independent.

Ofcom said: “We are disappointed that BT has not yet come forward with proposals that meet our competition concerns.

“Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

The regulator said it set out its competition concerns in July believing BT “has the incentive and ability to favour its own retail business when making strategic decisions about new network investments by Openreach”.

Adding: “This concern arises because BT runs the national network, Openreach, as well as its own retail business.”

Ofcom believes a separation of the Openreach business will address “this structural issue, to provide regulatory clarity and confidence to the industry, and ultimately better outcomes for people and businesses” and a more independent Openreach would be well placed to invest in ‘full fibre’ broadband “for everyone”.

The regulator is proposing Openreach become a distinct company with its own board which would comprise a “majority of non-executive directors, including the chair, who are not affiliated with BT”.

On Monday night, BT appointed the first independent chairman to its Openreach arm, Mike McTighe, who was on the Ofcom board between 2007 and 2015.

Speaking today, BT Chairman Sir Michael Rake said: “We promised in July to create an Openreach Board and we are delivering on that promise.

“I remain hopeful this significant move by BT can help to underpin a sustainable, proportionate and fair regulatory settlement that is in the interests of the whole country.”

Ofcom has raised concerns about BT's plans which would see the chief executive of Openreach still report to BT boss Gavin Patterson.

Ofcom said a board not affiliated with BT “would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally”.

Ofcom has also published the results of a July consultation on Openreach which gathered 94,000 responses, 90,000 of which were “identical responses written by the campaign, calling for action to improve the UK’s telecoms infrastructure; including the full, structural separation of BT”.

A “significant number” of the 4,000 non-standard responses raised concerns about slow broadband speeds, the availability of fibre broadband and the quality of service from major service providers.

Ofcom said most of those concerns related to BT, with a smaller number of complaints about other providers including Sky, TalkTalk and Virgin Media.

A “few responses” shared positive experiences of BT and urged no further action.

Two issues were also raised in the consultation: calls for the structural separation of Openreach and the potential costs of any action, notably how BT’s pension deficit could be affected.

Across the range of consultation responses, two issues featured particularly heavily: calls for the structural separation of Openreach; and the potential costs of any action, notably how BT’s pension deficit could be affected.

BT has warned structural separation would trigger “substantial costs”, notably from the impact on the BT Pension Scheme Trustees.

Ofcom said most stakeholders who responded to its consultation “took the view that the concerns raised by BT, the unions and Trustees relating to the BT Pension Scheme have been overstated”.

The regulator said: “Our current view is still that an effective and robust form of legal separation, with Openreach as a wholly-owned subsidiary of BT, is likely to achieve the greatest improvements for everyone in the shortest amount of time.

“Therefore, this is the approach with which we are minded to proceed.”

However Ofcom warned if monitoring of the process suggests legal separation is not delivering sufficient benefits for the wider telecoms industry and its customers, “we will return to the question of structural separation – fully breaking up the companies”.